Who Will Buy the Los Angeles Times?

It was late 2006, and Los Angeles Times managing editor Leo Wolinsky had been summoned to the home of entertainment mogul David Geffen. A billionaire five times over, Geffen was interested in buying the newspaper Wolinsky edited. Very interested. His opening bid, as the Times itself would later report: $2 billion. Cash.

Wolinsky recalls driving past Geffen's imposing gates for what felt like a good mile, across the palatial estate once owned by Warner Bros. founder Jack Warner, through a manicured park. Geffen said he employed 13 full-time gardeners.

"Look, I could do it with 10," Geffen said. "But I want it done right."

The two talked about the L.A. Times. Actually, it was mostly Geffen who did the talking.

"He knew what he wanted to do," Wolinsky says. "I asked a question or two, and he launched into a two-hour — I wouldn't call it a diatribe — a monologue, about everything. He really thought he could save the paper."

Geffen never had the chance to make a formal offer. His overtures were rejected out of hand by Dennis FitzSimons, CEO of Tribune Co., the Times' corporate parent. Its board of directors thought it could do better selling the entire Tribune package: eight newspapers, more than 20 TV stations, the Chicago Cubs and a 30 percent stake in the Food Network.

Indeed they did, when investor Sam Zell borrowed $12 billion to buy it in an audacious and tragically timed leveraged buyout on the eve of the global financial collapse.

Last month, Tribune Co. and the Los Angeles Times emerged from a bitterly contested, four-year bankruptcy drama. Now there's every expectation that the L.A. Times will be sold to a new owner, possibly even before the end of spring.

The Geffen episode stands as a tantalizing what-if — what if David Geffen had bought the paper and run it like his garden? Would things be any different?

"When it became clear that [Tribune] was going to go to Zell, [Geffen] predicted the paper would be severely cut," Wolinsky says. "He said if they took the paper apart, he wouldn't be interested in it. I haven't heard from him since."

Via email, Geffen says only this: "I was interested at that time but never was allowed to look at the books or in any way investigate the LAT financial situation. I have no interest in the LAT now or since that time. I simply do not want to talk about it."

Since the sale, revenue has tanked at newspapers throughout the industrialized world, thanks to the prolonged recession and cultural shifts in news consumption.

But the Times would be put through its own private hell — Zell Hell, some would call it, although, in fairness, the budget-cutting started long before he arrived.

According to the American Society of News Editors, the number of newsroom employees in the United States has fallen 27 percent since 1989. But since its peak in 1999, with 1,300 editorial employees, the L.A. Times has lost 60 percent of its newsroom employees, currently stabilizing at just above 500.

Geffen was prophetic: A paper that he had valued at $2 billion probably is worth $200 million to $400 million today.

Yet the Times remains a relatively strong brand, the dominant daily in the second-largest city in America and the fourth highest–circulation paper in the United States. As of 2011, according to the American Society of News Editors, the L.A. Times was second only to the New York Daily News in combined print and online local readers — the close-in folks whom newspapers are trying so hard to win back.

Perhaps most surprising, bankruptcy or not, the L.A. Times on its own makes a tidy profit — $70 million in 2011, according to a former Tribune Co. employee in a position to know, as well as a wealthy businessman among the many who have tossed around the idea of buying the paper.

"It's a smaller paper, physically," these days, California historian D.J. Waldie says. "Its capacity to reach across the globe and tell the stories that need to be told has shrunk. But its presence in the lives of many local residents is strong. And its voice, though diminished, is the loudest we hear."

It's no exaggeration to say that the new owner will have an enormous influence on politics, culture and civic life in L.A.

Early this week, news broke that Tribune Co. has hired financial advisers to sell its newspapers. The question is, who will buy the Los Angeles Times, and why?

"The new mayor will probably have a bigger impact than the new owner of the Times," Waldie says. "But not much more."

For 114 years, the L.A. Times was owned by the Chandler family, a lineage so essential to the city's history that David Halberstam wrote, in The Powers That Be: "No single family dominates any major region of this country as the Chandlers have. ... They did not so much foster growth in Southern California as ... invent it. We have water because the Chandler family stole it for us; we have large horizontal sprawl and a port in San Pedro because they wanted it that way."

Yet until the early 1960s, the Times was a wretched newspaper, the second-worst big paper in the country (after the Chicago Tribune). Its news reporters delivered propaganda for the Chandler family and downtown businessmen, promoting the region's real estate and Republicans, defaming unions and opposing civic reform.

But after the third Chandler, Otis, took over in 1960, the prodigal son not only turned the Times into a world-class paper but he also made it fantastically profitable. He did so by spending heavily on advertising, promotions and, most of all, journalism.

"He opened up bureaus around the world," Wolinsky says. "He spent money like water."

In the 1980s and '90s, reporters at then–Times-Mirror Square were handed first-class tickets when flying to cover stories in other cities. Top reporters took the occasional rare lunch in the Tamayo Room or Picasso Room, both elegant, upstairs dining rooms where Times executives ate among low-numbered lithographs by the two famed painters.

In 2000, the Chicago-based Tribune Co. bought Times-Mirror for $95 a share. The Chandler family came out owning a chunk of the Tribune Co.'s many papers, TV stations and the Cubs, while Tribune Co. got control of the L.A. Times.

"They seemed to consider the things they saw at the Times as hedonistic," Wolinsky says. "The L.A. people lived too well, spent too much." The Chicago owners "were insulted by it."

Coin-operated aspirin machines were installed in the Times newsroom — no more free aspirin handed out by secretaries. Executives' names were removed from special parking spots.

Those small insults might be forgotten today, but they accompanied a national collapse in display advertising, thanks to the Internet, as well as the near-obliteration of newspaper classified ads due to Craigslist and free websites. In a parallel to what slammed the unprepared music industry, millions of consumers stopped paying for newspapers — they could get their news free, and fresher, online.

By 2006, the Chandlers wanted out. Geffen was interested; so were L.A. billionaires Eli Broad and Ron Burkle. But the spoils went to Sam Zell, the real estate mogul who looked like a character from Tolkien's Middle-Earth dressed for a night at a disco.

Zell's nickname was "Grave Dancer," and his crassness disgusted many journalists — he once suggested that Tribune papers allow X-rated ads because "everyone loves a good blow job."

"He was the most vulgar, repellent rich person I've ever met," says Tim Rutten, a journalist at the Times for 40 years, who was laid off in 2011.

Zell borrowed $12 billion from four investment banks and bought up all Tribune Co. stock — at $34 a share. He made the purchase through an employee stock ownership plan (ESOP), saving Zell a small fortune in taxes if he could just hold on for 10 years. Best of all, the debt was loaded onto Tribune Co. itself. Zell personally put in only about $315 million.

Zell figured that if he could keep revenue from falling and pay down the $12 billion debt — from that same Tribune Co. revenue — he could make $5 billion, an enormous return. But if revenue fell, Tribune Co. would owe more than it was worth, like a house with an underwater mortgage. That's what happened, amidst the global financial meltdown. By April 2008, four months after buying it, Wolinsky says, Zell "had already hired a bankruptcy firm." On Dec. 8, 2008, Tribune Co. filed for Chapter 11.

"Given how ugly the Tribune leveraged buyout was, and how poorly conceived it was, there was gonna be nasty litigation," says Jonathan Lipson, who teaches bankruptcy law at Temple University.

In this market, banks get rid of crappy assets and take a modest loss while the new investors get a chance to own a large piece of a company at a discount.

After years of bankruptcy-court wars, three large firms emerged as the key buyers, or holders, of Tribune senior debt: Los Angeles–based Oaktree Capital Management; Angelo, Gordon & Co.; and JPMorgan Chase & Co.

The biggest voice among these, in deciding the great civic and political question of who will buy the Los Angeles Times, is Oaktree Capital, run by dashing billionaire Bruce Karsh. Oaktree was awarded roughly one-quarter ownership of Tribune Co., while Angelo, Gordon & Co. and JPMorgan got about 9 percent each. Many other players got smaller chunks.

Karsh now is chairman of Tribune's board of directors, and the company is valued at about $4.5 billion, mostly thanks to TV and cable properties including WGN, KTLA Channel 5 and the Food Network. The eight newspapers are valued at just $623 million. (Zell sold the Cubs in 2009.)

L.A. residents will hear more of Karsh, a former appellate clerk to now–Supreme Court Justice Anthony M. Kennedy, summa cum laude grad of Duke University and a former assistant to billionaire Eli Broad in Broad's days at SunAmerica.

Broad is rumored to be among the bidders approaching Karsh and the board to discuss buying the L.A. Times. Tribune Co.'s board of directors, laden with major entertainment and finance industry players, convened for the first time in January.

This week, news broke on CNBC that the papers would be auctioned off in a process overseen by bankers Evercore and JPMorgan. A more accurate description is that the two firms have been hired to explore which suitors are legit — and willing to pay the magic number.

Tribune spokesman Gary Weitman, in an email, said, "There is a lot of interest in our newspapers, which we haven't solicited. Hiring outside financial advisers will help us determine whether that interest is credible, allow us to consider all of our options, and fulfill our fiduciary responsibility to our shareholders and employees."

Media consultant Alan Mutter says of Karsh and Tribune's board, "Those guys don't care if it's a newspaper or a taco stand. Right now, they're testing the market to see who's out there and how much they're willing to pay. If they find the right buyer, it's gone."

Rows of telephones and lime-green ergonomic chairs sit idle in Austin Beutner's West L.A. office, which was supposed to be campaign HQ for his 2013 L.A. mayoral run. These days, Beutner, the investment banker who made a fortune on Wall Street before becoming Antonio Villaraigosa's top deputy mayor, is essentially unemployed.

"My day right now is ... ," he says, his voice between a mumble and a whisper. "You ever been to one of those English hotels where they have tea at 4 o'clock in the afternoon? Probably not. So you travel there, and they have these little sandwiches, tea sandwiches. They take a regular old sandwich and cut it into 15 pieces. That's my day, as a metaphor."

The 52-year-old Beutner is looking for a bigger sandwich. He raised more than $600,000 to run for mayor in 2013, but most residents had no idea who he was, and his wonky if credible campaign ideas made little news. He dropped out in May.

Beutner now is putting together a group of wealthy Angelenos to make an offer on the L.A. Times and operate it as a nonprofit.

"There is no voice to rival the L.A. Times," Beutner says. "I'd love to see it restored to its prior stature in terms of it being a voice of civic consciousness. And I think the best ownership for that voice is local."

Local is everything to Beutner: local ownership, more local-news coverage. He says he would bulk up coverage of L.A. and Southern California but trim back some foreign and national political coverage in locales where a dozen or more news outlets often cover the same story.

If his group bought the Times, he'd consider using more stories from pool reporters and wire services. As an example, he cited a reporter stationed in Afghanistan for three years at great cost to the Times. "Afghanistan is not unimportant," he says. "But you can't do everything. You can't be everywhere in the first person."

Editor-in-chief Davan Maharaj takes exception to this example of costly foreign coverage, saying: "Afghanistan is a straight case where foreign is local. ... People here are very interested in those wars, because they give their sons and daughters [to them]."

Similar to when rich locals began banding together to bid on Frank McCourt's Los Angeles Dodgers, Beutner won't say who is in his group. Rumors seem to suggest that Broad and former Mayor Richard Riordan are involved, and possibly even mega-billionaire Patrick Soon-Shiong.

"I think we have the resources to pay an appropriate amount," Beutner says. "I'm not being coy; we haven't seen the books and records yet. ... We'd definitely be prepared to move quickly." It probably can't hurt that Beutner in 1996 co-founded Evercore — the very investment bank hired by Tribune this week to vet prospective buyers.

Though Beutner steadfastly refuses to say who "we" is, Soon-Shiong makes a certain amount of sense as one of the deep pockets. The richest man in Los Angeles and a brilliant doctor and inventor, he is co-inventor of more than 50 patents, including one for a drug called Abraxane, which uses nanoparticle technology to fight breast cancer. He has a daughter, Nika, who interned at the L.A. Times last summer.

Soon-Shiong declined to comment, but clearly he wants to own something civic — and big — in L.A. He bought the El Capitan Theatre on Hollywood Boulevard and a minority share of the Lakers, and teamed up with hedge fund billionaire Steven A. Cohen to convince McCourt to sell him the Dodgers, although that didn't work out. Now, he's reportedly interested in buying AEG, owner of Staples Center.

For many Times journalists, past and present, Beutner's team represents the Dream Team, just as many Angelenos hoped developer Rick Caruso and former Yankees/Dodgers manager Joe Torre would buy the Dodgers.

But even an earnest-sounding nonprofit would have to halt the Times' decline in revenue. "If you look at the bankruptcy documents, they show continuing, rather precipitous declines," says Beutner, who was deputy mayor for 15 months at an annual salary of $1.

According to news-industry analyst Ken Doctor, advertising revenue at big papers has been declining by 5 percent to 10 percent a year. Collapsing circulation, on the other hand, appears to have leveled off.

The Times needs to stop advertisers from bailing or come up with new revenue streams — or cut further.

Does the affable Beutner, by all accounts an extremely cautious operator, have the stomach for it? As Zell learned, owning a paper that fires journalists year after year can change your public image from dull oligarch to monster.

"Sam Zell had a perfectly happy life for 30 years as a successful investor that no one had heard of," says Richard Rushfield, a former L.A. Times online entertainment editor, now West Coast bureau chief of news-tech-entertainment site Buzzfeed. "You come in and fire journalists ... [and] all of a sudden you've got a building full of investigative reporters that suddenly think you're Satan."

There is one potential buyer of the L.A. Times who is accustomed to being hated, and who, if so inclined, can outbid almost anyone on the planet: Rupert Murdoch.News Corp., which owns Fox News, TheWall Street Journal and the New York Post, has $9 billion in cash reserves.

"Murdoch's people are out there doing their due diligence" to potentially bid, Doctor says. He thinks Murdoch is the odds-on favorite to buy the L.A. Times, in part because News Corp. owns TheWall Street Journal.

The two big papers could share foreign and Washington, D.C., bureaus, and even national ad-sales staff. Says one former Times editor, "Murdoch can pay more than anyone else, and he can extract more savings than anyone else."

And, as Doctor explains, "The Times is sitting in the entertainment capital of the world. If you seize the coverage of the entertainment world, and extend it to all things digital, then you take a potential advantage that hasn't yet been exploited."

If Tribune Co. chair Bruce Karsh and the financial/entertainment honchos on its board would rather off-load all eight newspapers at once, that could tilt the advantage away from Beutner's local Dream Team — and others not yet known — and toward Murdoch.

When an L.A. Times reporter spotted Murdoch at the Golden Globe Awards last month and asked him about his interest, Murdoch quipped: "It won't get through, with the Democratic administration in place." He was referring to the fact that, even if Karsh and the board want Murdoch, he would need a waiver from the Federal Communications Commission to own a TV station and newspaper in the same city (News Corp. owns TV stations KTTV Channel 11 and KCOP Channel 13 in L.A.).

Such waivers are routinely granted, but the FCC may balk at Murdoch, who has clearly implied he'd be hurt by the conservative political bent of Fox News and some other News Corp. outlets.

But as hated as Murdoch is by many Democrats for his views, and by others for the alleged cellphone hacking by News Corp. journalists in the U.K., and by others who say Murdoch has cheapened newspaper standards, not everyone in journalism thinks Murdoch would be such a disaster.

"Several years ago, people would have thought that would be a tragedy," says Jim O'Shea, former L.A. Times editor-in-chief. "Now they say, 'Well, at least he's interested in newspapers.' If he came in and invested money, it wouldn't be a bad thing it all."

Some see a white knight in Aaron Kushner, the greeting-card magnate who bought the Orange County Register and whose counterintuitive strategy has been to hire reporters by the barrel and pay them well. Spending to improve the product to attract customers — will Kushner's idea work for newspapers, where cutbacks have been the overwhelming response?

"I don't think even Aaron knows if it's gonna work," says one Register reporter. "But they feel like the eyes of the journalism nation are on them."

At a big staff meeting, in a newsroom packed with Register employees, one of the first questions Kushner was asked was, "Are you going to buy the L.A. Times?" About the same time, Kushner, who declined to comment for this story, told a Register reporter: "We would be honored to acquire the Los Angeles Times if they successfully are able to come out of bankruptcy."

Gustavo Arellano, editor of L.A. Weekly sister paper OC Weekly, which recently published an in-depth look at Kushner, comments, "I really think for him it's a hobby. The minute he stops making money, he stops his model railroad."

Because the Times is so "ridiculously cheap," Doctor warns, it could attract "a motley collection of buyers." The nightmare scenario: someone like "Papa Doug" Manchester, 70, a right-wing developer who bought the San Diego Union-Tribune (now U-T San Diego) and, critics say, turned it into a cheerleader for the city and its developers.

Manchester, who changed the U-T's motto to the cloying, "The World's Greatest Country & America's Finest City," told public radio station KPBS last year he was "certainly" going to consider buying the L.A. Times. (His partner, John Lynch, says: "As far as we know, it's not for sale," and refused comment.)

Needless to say, the mood among the 500 or so people in the Times' editorial operation is a mix of hope and nervousness.

Jim Newton, the paper's editor-at-large, says, "There's a slight possibility that the paper will come out of this with a new, more engaged owner." But, he chuckles, "On the other hand, as one of my colleagues once said, 'We've long ago gotten over the idea that it can't get worse.' "

Throughout its four-year bankruptcy, Times newsrooms from downtown L.A. to Washington, D.C., to Sacramento limped along. Yet some coverage was awe-inspiring, including the riveting City of Bell investigation and the paper's game-changing "Grading the Teachers" series about the Los Angeles Unified School District.

Geneva Overholser, director of USC's Annenberg School of Journalism, says the diminished paper had no choice but to act "almost like a beacon sweeping across the vastness. Wherever it lands, that's where you'll learn about."

Certain cost-saving decisions made by Times publisher and Tribune Co. CEO Eddie Hartenstein have been met with derision and hostility, such as the fake front pages that turn out to be advertisements for, say, the Ryan Gosling flop Gangster Squad. Or Hartenstein's agreement to print TheWall Street Journal on the Times' prized printing presses, requiring that much of the Times be printed earlier in the evening, ruining its time-zone advantage over East Coast papers.

In an attempt to make up for this, the Times launched its LATExtra section, a grab bag of local, national and foreign stories that purportedly contains the freshest news. "You look at the damn thing, it's like a ransom note," Rutten says. "What the hell is it? Here's a story about the Board of Supervisors, a bear in La Cañada, a coup in 'Berzerkistan.' "

Hartenstein's move saved as much as $9 million a year, according to the Tribune Co. employee who saw financial documents, perhaps preventing job cuts. The Times has begun hiring, albeit mostly less-experienced (and cheaper) reporters.

But the paper faces deeper structural problems even as TheWall Street Journal and The New York Times pave the way to the digital era. The L.A. Times has been, in the words of one ex-reporter, "in suspended animation." Its website hasn't had a major redesign since 2009, and its Tribune software stifles innovation.

One problematic effort has been its paywall, launched on March 5, 2012, which allows readers 15 free pageviews a month before requiring a paid subscription. The paywall is cumbersome and hard to figure out, repeatedly kicking subscribers out and forcing them to sign in via a third-party website like Google or Facebook.

"They've pretty much failed doing their paid content," says Steve Brill, founder of Court TV and American Lawyer, who now runs Press+, a firm that has created paywalls for more than 400 papers. "Their system doesn't work. It's completely customer-unfriendly."

Editor Maharaj denies that the paper went into paralysis but steers his comments toward its content rather than its structural challenges, saying, "In the last four years, we've produced great journalism under a cloud of bankruptcy."

While that is clearly true, the arts and entertainment coverage offers an interesting case study of Maharaj's reign thus far, during which he has developed both loyal staffers and critics who privately disdain him and his years in the 'burbs.

When Maharaj took over in December 2011, Sallie Hofmeister was assistant managing editor (arts and entertainment). A friend of Maharaj's from their days in the Times' Business section, Hofmeister oversaw 50 reporters and all culture coverage — including Calendar and the Envelope — after a short stint as business editor. Some ex-Calendar employees say she strongly anticipated a promotion, perhaps to Wolinsky's old job, managing editor. Maharaj didn't promote her, and she left. (Hofmeister could not be reached for comment; Maharaj declined to comment.)

Says one former entertainment reporter, "Someone fell out of favor — and they were gone."

Meanwhile, the culture sections have suffered something of an identity crisis. If not for the bankruptcy, Maharaj might have attracted a top-drawer culture editor keen to replace Hofmeister in what is a plum job, globally, in arts and entertainment journalism. Instead, Maharaj chose John Corrigan, another ex-Business editor, a move that mystified some. A string of departures by top-level entertainment writers and editors has followed his appointment.

"Staff members were shocked by how little [Corrigan] knew about the Calendar section," says the entertainment reporter. (Corrigan could not be reached for comment.)

Corrigan soon ordered Patrick Goldstein, the "Big Picture" Hollywood columnist, to drop his column and blog full-time. Goldstein resigned — followed weeks later by another dustup in which the widely read Geoff Boucher, who wrote for the Times' popular Hero Complex blog (a hot destination for young readers), abruptly left.

Various versions of these events exist, but many say that emails from Corrigan to Boucher left Boucher feeling insulted and alienated. Boucher was quickly snapped up by Entertainment Weekly. Then this week, Times entertainment news editor Claudia Eller left to become co-editor of Variety after 20 years at the Times.

In some ways, the Times as a whole suffers from an identity crisis. It has aspired, often successfully, to be a national, regional and local paper. That's a tough mission, now being attempted with fewer than half the journalists of 12 years ago.

The next billionaires who buy the Times — or all eight papers — have this to consider. Not surprisingly, Bruce Karsh, the chief seller, won't betray even a hint about whether he and the board are looking for the highest bidder, or the bidder most committed to shepherding the paper into the future.

"When you're doing a deal, you don't advertise you're doing the deal," media strategist Mutter says. "The people who know, know. And they're the last ones to talk."